Determination of Cointegration Rank in High-Dimensional Systems: Evidence from the World's Major Stock Markets

• Activity Number: 174
• Type: Contributed
• Date/Time: Monday, August 2, 2010 : 10:30 AM to 12:20 PM
• Sponsor: Business and Economic Statistics Section
• Author(s): Alireza Tahai*+
• Companies: Mississippi State University
• Keywords: Cointegration ; global stock markets ; vector autoregression model

Abstract

In recent years, controls on financial transactions have been lifted substantially, suggesting that global markets today are somewhat more integrated than they were previously. As a result, the need to reexamine the degree to which global stock markets are linked with each other becomes apparent. The purpose of this paper is to examine the relationships among the national stock indices of the 'Group of Seven' (the United States, Japan, Germany, the United Kingdom, France, Italy, and Canada). The empirical findings of the vector autoregression model provide new evidence on the linkages among the major international stock markets, on the influence of individual markets on other markets, on the reaction speed and intensity of one market to innovations in the other markets, and on the informational content of different intervals.